Is CT Pass-Through Entity Tax Deductible?

A new tax law that allows pass-through entities (PTEs) to be taxed at the entity level rather than the level of the individual owner has been passed in Connecticut. In order to get around the federal cap on state and local tax (SALT) deductions, the PTE tax is a state income tax on the entity’s income. Can you deduct the CT Pass-Through Entity Tax, though? Let’s investigate.

The Pass-Through Entity Tax Return (Form OP 424) is used in Connecticut to report and pay the PTE tax. The entity’s Connecticut taxable income is used to determine the tax, which has a 6.99% tax rate. The tax is due on the fifteenth day of the third month after the taxable year’s end. For instance, the PTE tax return and payment are due on March 15, 2022, if the entity’s taxable year ends on December 31, 2021. Has CT Adopted PTET?

There is a pass-through entity tax (PTET) in Connecticut. The federal restriction on SALT deductions, which caps the amount of state and local tax deductions allowed on federal income tax returns at $10,000 annually, prompted the enactment of the tax. Connecticut offers an alternative to the deduction limit by enabling PTEs to be taxed at the entity level. The PTET is deducted as a business expense on the entity’s federal income tax return, which lowers the entity’s federal taxable income.

How is the NYC franchise tax determined? The franchise tax in New York City (NYC) is a fee for the right to conduct business there. Corporations, limited liability companies (LLCs), and other legal entities with the right to conduct business in New York City are subject to the tax. The tax is calculated using the entity’s capital or net income, whichever is higher. The tax rate is 4% for qualified New York manufacturers and 6.5% for general companies. Taxes are due on March 15th for taxpayers filing taxes for the calendar year and on the 15th of the fourth month after the end of the fiscal year for taxpayers filing taxes for the current fiscal year.

Owners of pass-through firms that pay the PTE tax are eligible for a Pass-Through Entity Tax Credit from Connecticut. Individuals, trusts, and estates who own the entity are eligible for the credit, which is equal to 93.01% of the PTE tax paid by the entity. Although the credit cannot be returned, any unused portion may be carried over for a maximum of five years. The credit serves to lessen the effects of the federal cap on SALT deductions and is intended to offset the individual owner’s Connecticut income tax burden.

Finally, the CT Pass-Through Entity Tax is deducted as a business expense on the entity’s federal income tax return, lowering the entity’s federal taxable income. The Pass-Through Entity Tax (PTET) in Connecticut was created to circumvent the federal SALT deduction cap. The PTET is deducted as a business expense on the entity’s federal income tax return, which lowers the entity’s federal taxable income. To offset the effects of the federal cap on SALT deductions, Connecticut grants a Pass-Through Entity Tax Credit to owners of pass-through firms that pay the PTE tax.